For these companies, the business is no longer just about simply
processing orders to generate revenue. GrubHub’s acquisition of
two startups last week, as well as online ratings service Yelp’s
buy of Eat24, reflects a new priority: speed.

As a variety of challengers in this budding industry duke it out
for supremacy, they want to bolster their top line with premium
service fees for consumers, along with what they already charge
restaurants. Think of it as 'surge pricing,' but at dinnertime:
what would you pay to cut that one-hour wait down to 15
minutes or less?

GrubHub's coveted stat

The influx of competitors appears to be going after a key metric
for GrubHub: its ‘active diners,’ which the company
counts upon for the bulk of its revenue, since consumers are
responsible for the orders from restaurants that pay fees to
GrubHub. Next, active diners could be responsible for even more
of GrubHub's top line.

In its earnings announcement last week,
GrubHub revealed its active diner headcount has
surpassed the 5 million mark; for years the company has enjoyed
double-digit growth in this segment, as is illustrated in a
graphic it used in a 2014 investor presentation.

There’s just one catch: GrubHub's ‘active
diner’ headcount consists of some diners who aren’t necessarily
all that active. The company’s federal filings stipulate an
'active diner' is classified as an account from which an order
has been placed within the last 12 months. One order over
one-year span doesn’t reflect the same engagement that social
media companies — Twitter, for example — are held accountable to
by shareholders and analysts.

But many GrubHub accounts make multiple orders
weekly (including the author of this post), and that’s what new
competitors Yelp and Square are targeting. Having two paying
customers in one transaction appears to be an awfully lucrative
business.

Differentiation

GrubHub has successfully cultivated a loyal
user base through its easy-to-navigate user interface, but
prolonged wait times — as Uber has already demonstrated — could
be enough to push some consumers to ante up for a premium rate at
peak times. With wait times for popular restaurants closing in on
an hour, or longer, at peak times in markets like New York, every
company slugging it out for scale has few options to
differentiate their service.

Grubhub charges restaurants a lesser fee than its competitors for
access to its platform and its broad base of users; if Square and
Yelp opt to reduce what they make off restaurants in lieu of
pushing higher rates on to consumers, their companies Caviar and
Eat24 will instantly become more viable to their respective
parent company.

In August, online payment service Square branched out into new
territory with a $90 million buy of
Caviar, a high-end food delivery startup that tacks on a
hefty service fee to bring consumers the finest in high-end
dining. While Square’s big buy aims to address the proverbial
“1%” of both diners and restaurants, other competitors are
casting a wider net to reach the most users possible.

GrubHub is moving, too

For its part, GrubHub bought a pair of food
delivery startups as it ramps up a plan to start delivering food
that is ordered via its app in nearly a dozen cities, covering
more than 3,000 restaurants. Last week, the company bought
Massachusetts-based DiningIn and California-based Restaurants on
the Run, giving GrubHub a pair of offerings to
fight off Yelp and Square. Notably, while Yelp shares rose today
after its big deal announcement, GrubHub's stock slumped.

Yelp, which had long been rumored to branch out of the ratings
game and into verticals that allowed it to draw more revenue from
its massive base of businesses, struck
a $134 million cash-and-stock deal to buy Eat24, another
California-based delivery startup.

The barriers to entry in the food delivery business are low,
meaning that other competitors could emerge, as well. Already,
Uber is scaling up a
competitor to GrubHub.

Long-term, the 800-lb. gorilla in the room could turn out to be
Instacart, which recently took on more than $200 million in
funding at a $2 billion valuation. The company currently focuses
on grocery deliveries, but with its newfound funding and the
synergies it could have with restaurants, it wouldn’t be
far-fetched to think Instacart could also one day rival the
offerings of Square, GrubHub and Yelp.

With the ongoing fray taking place to secure recurring revenue
from consumers, GrubHub could be hard-pressed
to keep growing its ‘active diner’ headcount — and if it sees
active diners’ usage begin to decline on its platform, this would
be a clear sign its competitors are successfully taking a bite of
its revenue.

It remains to be seen how Yelp will generate stats from its
latest acquisition to show shareholders its food delivery
vertical is growing the top line. But the best metric to judge
whether GrubHub's competitors are succeeding
against the incumbent may come from the company’s own financial
filings.

And investors will want to track its ‘active diners’ to make sure
no one else is chipping into its trajectory.